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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission File Number: 000-51734
Calumet Specialty Products Partners, L.P.
(Exact Name of Registrant as Specified in Its Charter) 
Delaware 35-1811116
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification Number)
2780 Waterfront Parkway East Drive,Suite 200 
Indianapolis,IN 46214
(Address of Principal Executive Offices) (Zip Code)
(317) 328-5660
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
 
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common units representing limited partner interestsCLMTNasdaq


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer oAccelerated filer 
Non-accelerated filer oSmaller reporting company 
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On May 6, 2021, there were 78,676,262 common units outstanding.


Table of Contents
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
QUARTERLY REPORT
For the Three Months Ended March 31, 2021
Table of Contents
 
 Page
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes certain “forward-looking statements.” These statements can be identified by the use of forward-looking terminology including “may,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “plan,” “should,” “could,” “would,” or other similar words. The statements regarding (i) the effect, impact, potential duration or other implications of the ongoing novel coronavirus (“COVID-19”) pandemic and global crude oil production levels on our business and operations; (ii) demand for refined petroleum products in markets we serve; (iii) estimated capital expenditures as a result of required audits or required operational changes or other environmental and regulatory liabilities; (iv) our anticipated levels of, use and effectiveness of derivatives to mitigate our exposure to crude oil price changes, natural gas price changes and fuel products price changes; (v) estimated costs of complying with the U.S. Environmental Protection Agency’s (“EPA”) Renewable Fuel Standard (“RFS”), including the prices paid for Renewable Identification Numbers (“RINs”) and the amount of RINs we may be required to purchase in any given compliance year; (vi) our ability to meet our financial commitments, debt service obligations, debt instrument covenants, contingencies and anticipated capital expenditures; (vii) our access to capital to fund capital expenditures and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms; (viii) our access to inventory financing under our supply and offtake agreements; (ix) our ability to remediate the identified material weakness and further strengthen the overall controls surrounding information systems; (x) the future effectiveness of our enterprise resource planning (“ERP”) system to further enhance operating efficiencies and provide more effective management of our business operations; and (xi) potential costs and savings associated with our cost reduction plan to reduce overall operating expenses, as well as other matters discussed in this Quarterly Report that are not purely historical data, are forward-looking statements. These forward-looking statements are based on our expectations and beliefs as of the date hereof concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our current expectations for future sales and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisition or disposition transactions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause our actual results to differ from those in the forward-looking statements include those described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Annual Report”). Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
References in this Quarterly Report to “Calumet Specialty Products Partners, L.P.,” “Calumet,” “the Company,” “we,” “our,” “us” or like terms refer to Calumet Specialty Products Partners, L.P. and its subsidiaries. References in this Quarterly Report to “our general partner” refer to Calumet GP, LLC, the general partner of Calumet Specialty Products Partners, L.P.



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PART I
Item 1. Financial Statements
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2021December 31, 2020
(Unaudited)
(In millions, except unit data)
ASSETS
Current assets:
Cash and cash equivalents$114.2 $109.4 
Accounts receivable
Trade, less allowance for credit losses of $1.1 million and $0.8 million, respectively198.6 152.4 
Other20.7 8.0 
219.3 160.4 
Inventories257.8 254.9 
Prepaid expenses and other current assets11.3 10.2 
Total current assets602.6 534.9 
Property, plant and equipment, net904.9 919.8 
Other noncurrent assets, net360.5 353.6 
Total assets$1,868.0 $1,808.3 
LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
Current liabilities:
Accounts payable$203.9 $179.3 
Accrued interest payable46.9 31.7 
Accrued salaries, wages and benefits45.9 27.6 
Obligations under inventory financing agreements95.6 98.8 
RINs obligation215.1 129.4 
Other current liabilities67.1 74.8 
Current portion of long-term debt157.2 2.9 
Total current liabilities831.7 544.5 
Other long-term liabilities70.5 73.0 
Long-term debt, less current portion1,239.3 1,319.4 
Total liabilities2,141.5 1,936.9 
Commitments and contingencies
Partners’ capital (deficit):
Limited partners’ interest 78,670,564 units and 78,062,346 units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively(267.4)(125.3)
General partner’s interest6.1 9.0 
Accumulated other comprehensive loss(12.2)(12.3)
Total partners’ capital (deficit)(273.5)(128.6)
Total liabilities and partners’ capital (deficit)$1,868.0 $1,808.3 
See accompanying notes to unaudited condensed consolidated financial statements.
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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
20212020
(In millions, except per unit and unit data)
(as adjusted)
Sales$600.3 $692.6 
Cost of sales642.3 669.1 
Gross profit (loss)(42.0)23.5 
Operating costs and expenses:
Selling13.1 13.3 
General and administrative36.7 20.2 
Other operating expense14.9 14.0 
Operating loss(106.7)(24.0)
Other income (expense):
Interest expense(34.2)(29.3)
Gain (loss) on derivative instruments(5.2)38.5 
Other0.2 0.9 
Total other income (expense)(39.2)10.1 
Net loss before income taxes(145.9)(13.9)
Income tax expense0.2 0.5 
Net loss$(146.1)$(14.4)
Allocation of net loss:
Net loss$(146.1)$(14.4)
Less:
General partner’s interest in net loss(2.9)(0.3)
Net loss attributable to limited partners$(143.2)$(14.1)
Weighted average limited partner units outstanding:
Basic and diluted78,593,724 78,399,314 
Limited partners’ interest basic and diluted net loss per unit:
Limited partners’ interest$(1.82)$(0.18)
See accompanying notes to unaudited condensed consolidated financial statements.
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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31,
 20212020
 (In millions)
Net loss$(146.1)$(14.4)
Other comprehensive income (loss):
Cash flow hedge loss (0.2)
Defined benefit pension and retiree health benefit plans0.1  
Total other comprehensive income (loss)0.1 (0.2)
Comprehensive loss attributable to partners’ capital (deficit)$(146.0)$(14.6)
See accompanying notes to unaudited condensed consolidated financial statements.
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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)
Accumulated Other
Comprehensive Loss
Partners’ Capital (Deficit) 
General
Partner
Limited
Partners
Total
(In millions)
Balance at December 31, 2020$(12.3)$9.0 $(125.3)$(128.6)
Other comprehensive income0.1   0.1 
Net loss (2.9)(143.2)(146.1)
Settlement of tax withholdings on equity-based incentive compensation  (0.6)(0.6)
Amortization of phantom units  1.7 1.7 
Balance at March 31, 2021$(12.2)$6.1 $(267.4)$(273.5)


Accumulated Other
Comprehensive Loss
Partners’ Capital (Deficit) 
General
Partner
Limited
Partners
Total
(In millions)
Balance at December 31, 2019$(10.6)$12.0 $20.2 $21.6 
Other comprehensive loss(0.2)  (0.2)
Net loss (0.3)(14.1)(14.4)
Settlement of tax withholdings on equity-based incentive compensation  (0.3)(0.3)
Amortization of phantom units  0.3 0.3 
Balance at March 31, 2020$(10.8)$11.7 $6.1 $7.0 

See accompanying notes to unaudited condensed consolidated financial statements.
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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
 20212020
 (In millions)
Operating activities
Net loss$(146.1)$(14.4)
Non-cash activities30.5 71.5 
Changes in assets and liabilities65.3 (77.0)
Net cash used in operating activities(50.3)(19.9)
Investing activities
Additions to property, plant and equipment(6.2)(14.9)
Other investing activities (2.4)
Net cash used in investing activities(6.2)(17.3)
Financing activities
Proceeds from borrowings — revolving credit facility216.1 472.5 
Repayments of borrowings — revolving credit facility(208.6)(325.3)
Proceeds from inventory financing134.4 245.1 
Payments on inventory financing(145.3)(269.7)
Proceeds from other financing obligations70.0  
Other financing activities(5.3)(0.8)
Net cash provided by financing activities61.3 121.8 
Net increase in cash and cash equivalents4.8 84.6 
Cash and cash equivalents at beginning of period109.4 19.1 
Cash and cash equivalents at end of period$114.2 $103.7 
Supplemental disclosure of non-cash investing activities
Non-cash property, plant and equipment additions$7.9 $10.8 
See accompanying notes to unaudited condensed consolidated financial statements.
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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business
Calumet Specialty Products Partners, L.P. (the “Company”) is a publicly traded Delaware limited partnership. Its common units are listed on the Nasdaq Global Select Market under the ticker symbol “CLMT.” The general partner of the Company is Calumet GP, LLC, a Delaware limited liability company. As of March 31, 2021, the Company had 78,670,654 limited partner common units and 1,605,522 general partner equivalent units outstanding. The general partner owns 2% of the Company and all of the incentive distribution rights (as defined in the Company’s partnership agreement), while the remaining 98% is owned by limited partners. The general partner employs the Company’s employees and the Company reimburses the general partner for certain of its expenses.
The Company manufactures, formulates, and markets a diversified slate of specialty branded products to customers in various consumer-facing and industrial markets. Calumet is headquartered in Indianapolis, Indiana and operates twelve facilities throughout North America.
The unaudited condensed consolidated financial statements of the Company as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal nature, unless otherwise disclosed. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K.
2. Change in Accounting Policy
During the first quarter of fiscal 2021, the Company changed its method of accounting for shipping and handling costs, which are primarily costs paid to third-party shippers for transporting products to customers. Under the new method of accounting, the Company includes shipping costs in cost of sales, whereas previously, they were included in Operating costs and expenses as a separate line item as transportation expense.
The Company believes that including these expenses in cost of sales is preferable, as it better aligns these costs with the related revenue in the gross profit calculation and is consistent with the practices of other industry peers. This change in accounting principle has been applied retrospectively, and the unaudited condensed consolidated statements of operations reflect the effect of this accounting principle change for all periods presented. This reclassification had no impact on net loss before income taxes, net loss attributable to limited partners, or limited partners’ interest basic and diluted net loss per unit. The condensed consolidated balance sheets, unaudited condensed consolidated statements of comprehensive income (loss), unaudited condensed consolidated statements of partners’ capital (deficit), and unaudited condensed consolidated statements of cash flows were not impacted by this accounting principle change.

The unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 have been adjusted to reflect this change in accounting policy. The impact of the adjustment for the three months ended March 31, 2020 was an increase of $30.8 million to cost of sales and a corresponding decrease to transportation expense in the unaudited condensed consolidated statements of operations.
3. Summary of Significant Accounting Policies
Reclassifications
Certain amounts in the prior years’ unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation.

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Renewable Identification Numbers (“RINs”) Obligation
The Company’s RINs obligation (“RINs Obligation”) is an estimated provision for the future purchase of RINs in order to satisfy the U.S. Environmental Protection Agency’s (“EPA”) requirement to blend renewable fuels into certain transportation fuel products pursuant to the Renewable Fuel Standard (“RFS”). A RIN is a 38-character number assigned to each physical gallon of renewable fuel produced in or imported into the United States. The EPA sets annual quotas for the percentage of renewable fuels that must be blended into transportation fuels consumed in the U.S. and, as a producer of motor fuels from petroleum, the Company is subject to those quotas. Compliance is demonstrated by tendering RINs to the EPA documenting that blending has been accomplished. To the extent the Company is unable to physically blend renewable fuels to satisfy the EPA requirement, it may purchase RINs in the open market to satisfy the annual quota.
The Company accounts for its current period RINs obligation by multiplying the quantity of RINs shortage (based on actual results) by the period end RINs spot price, which is recorded as a RINs obligation liability in the condensed consolidated balance sheets. This current period liability is revalued at the end of each subsequent accounting period, which produces non-cash mark-to-market adjustments that are reflected in cost of sales in the unaudited condensed consolidated statements of operations (with the exception of RINs for compliance year 2019 related to the San Antonio refinery, which amount is reflected in other operating expense in the unaudited condensed consolidated statements of operations). RINs generated by blending in excess of the EPA percentages may be sold or held to offset future RINs Obligations. Any RINs sales are recorded in cost of sales in the unaudited condensed consolidated statements of operations. The liabilities associated with the Company’s RINs Obligation are considered recurring fair value measurements. Please read Note 7 - “Commitments and Contingencies” for further information on the Company’s RINs Obligation.
4. Revenue Recognition
The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods promised within each contract and determines the performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Products
The Company is engaged in the production and marketing of hydrocarbon based specialty products including lubricating oils, solvents, waxes, and other specialty products. The Company is also engaged in the production of fuel and fuel related products, including gasoline, diesel, jet fuel, asphalt, heavy fuel oils, and other fuels products. The Company also blends, packages and markets high-performance branded specialty products through its Royal Purple, Bel-Ray, and TruFuel brands.
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to variable consideration such as product returns, rebates or other discounts to determine the net consideration to which the Company expects to be entitled. The Company transfers control and recognizes revenue upon shipment to the customer, or, in certain cases, upon receipt by the customer in accordance with contractual terms.
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; recognition generally occurs with the transfer of control at a point in time. The contract with the customer states the final terms of the sale, including the description, quantity and price of each product or service purchased. For fuel products, payment is typically due in full between 2 to 30 days of delivery or the start of the contract term, such that payment is typically collected 2 to 30 days subsequent to the satisfaction of performance obligations. For specialty products, payment is typically due in full between 30 to 90 days of delivery or the start of the contract term, such that payment is typically collected 30 to 90 days subsequent to the satisfaction of performance obligations. In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The expected costs associated with a product assurance warranty continues to be recognized as expense when products are sold. The Company does not offer promised services that could be considered warranties that are sold separately or provide a service in addition to assurance that the related product complies with agreed upon specifications. The Company establishes provisions based on the methods described in ASC 606 for estimated returns and warranties as variable consideration when determining the transaction price.
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Excise and Sales Taxes
The Company assesses, collects and remits excise taxes associated with the sale of certain of its fuel products. Furthermore, the Company collects and remits sales taxes associated with certain sales of its products to non-exempt customers. The Company excludes excise taxes and sales taxes that are collected from customers from the transaction price in its contracts with customers. Accordingly, revenue from contracts with customers is net of sales-based taxes that are collected from customers and remitted to taxing authorities.
Shipping and Handling Costs
Shipping and handling costs are deemed to be fulfillment activities rather than a separate distinct performance obligation.
Cost of Obtaining Contracts
The Company may incur incremental costs to obtain a sales contract, which under ASC 606 should be capitalized and amortized over the life of the contract. The Company has elected to apply the practical expedient in ASC 340-40-50-5 allowing the Company to expense these costs since the contracts are short-term in nature with a contract term of one year or less.
Contract Balances
Under product sales contracts, the Company invoices customers for performance obligations that have been satisfied, at which point payment is unconditional. Accordingly, a product sales contract does not give rise to contract assets or liabilities under ASC 606. The Company’s receivables, net of allowance for expected credit losses from contracts with customers as of March 31, 2021 and December 31, 2020 were $198.6 million and $152.4 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
The Company’s product sales are short-term in nature with a contract term of one year or less. The Company has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Additionally, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
5. Inventories
The cost of inventory is recorded using the last-in, first-out (“LIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. In certain circumstances, the Company may decide not to replenish inventory for certain products or product lines during an interim period, in which case, the Company may record interim LIFO adjustments during that period. During the three months ended March 31, 2021 and 2020, the Company recorded no activity (exclusive of lower of cost or market (“LCM”) adjustments) in cost of sales in the unaudited condensed consolidated statements of operations due to the permanent liquidation of inventory layers.
Costs include crude oil and other feedstocks, labor, processing costs and refining overhead costs. Inventories are valued at the LCM value. The replacement cost of these inventories, based on current market values, would have been $20.9 million higher and $6.7 million lower as of March 31, 2021 and December 31, 2020, respectively.
On March 31, 2017 and June 19, 2017, the Company sold inventory comprised of crude oil and refined products to Macquarie Energy North America Trading Inc. (“Macquarie”) under Supply and Offtake Agreements as described in Note 8 - “Inventory Financing Agreements” related to the Great Falls and Shreveport refineries, respectively.
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Inventories consist of the following (in millions):
March 31, 2021December 31, 2020
Titled
Inventory
Supply and Offtake
Agreements (1)
TotalTitled
Inventory
Supply and Offtake
Agreements (1)
Total
Raw materials$51.7 $12.0 $63.7 $30.8 $11.5 $42.3 
Work in process28.4 29.1 57.5 31.8 27.4 59.2 
Finished goods103.8 32.8 136.6 114.0 39.4 153.4 
$183.9 $73.9 $257.8 $176.6 $78.3 $254.9 
(1)Amounts represent LIFO value and do not necessarily represent the value at which the inventory was sold. Please read Note 8 - “Inventory Financing Agreements” for further information.
In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. During the three months ended March 31, 2021, the Company recorded a decrease in cost of sales in the unaudited condensed consolidated statements of operations of $22.7 million due to the sale of inventory previously adjusted through the LCM valuation. During the three months ended March 31, 2020, the Company recorded an increase in cost of sales in the unaudited condensed consolidated statements of operations of $66.3 million as a result of declining market prices.
6. Leases
The Company has various operating and finance leases primarily for the use of land, storage tanks, railcars, equipment, precious metals and office facilities that have remaining lease terms of greater than one year to 14 years, some of which include options to extend the lease for up to 34 years, and others of which include options to terminate the lease within one year.
Supplemental balance sheet information related to the Company’s leases as of March 31, 2021 and December 31, 2020, were as follows (in millions):
March 31, 2021December 31, 2020
Assets:Classification:
Operating lease assets
Other noncurrent assets, net (1)
$77.7 $85.8 
Finance lease assets
Property, plant and equipment, net (2)
3.8 4.0 
Total leased assets$81.5 $89.8 
Liabilities:
Current
Operating
Other current liabilities (1)
$35.0 $41.4 
FinanceCurrent portion of long-term debt0.6 0.6 
Non-current
Operating
Other long-term liabilities (1)
43.3 44.8 
FinanceLong-term debt, less current portion3.0 3.1 
Total lease liabilities$81.9 $89.9 
(1)In the first quarter of 2021, the Company had additions to its operating lease right-of-use assets and operating lease liabilities of approximately $2.6 million.
(2)Finance lease assets are recorded net of accumulated amortization of $3.6 million and $3.4 million as of March 31, 2021 and December 31, 2020, respectively.
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Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense related to the Company’s leases for the three months ended March 31, 2021 and 2020 were as follows (in millions).
Three Months Ended March 31,
Lease Costs:Classification:20212020
Fixed operating lease costCost of Sales; SG&A Expenses$11.8 $16.6 
Short-term operating lease cost (1)
Cost of Sales; SG&A Expenses1.8 2.7 
Variable operating lease cost (2)
Cost of Sales; SG&A Expenses3.7 0.9 
Finance lease cost:
Amortization of finance lease assetsCost of Sales0.2 0.1 
Interest on lease liabilitiesInterest expense0.1 0.1 
Total lease cost$17.6 $20.4 
(1)The Company’s leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets.
(2)The Company’s railcar leases typically include a mileage limit the railcar can travel over the life of the lease. For any mileage incurred over this limit, the Company is obligated to pay an agreed upon dollar value for each mile that is traveled over the limit.
As of March 31, 2021, the Company had estimated minimum commitments for the payment of rentals under leases which, at inception, had a noncancelable term of more than one year, as follows (in millions):
Maturity of Lease Liabilities
Operating Leases (1)
Finance Leases
     (2)
Total
2021$34.5 $0.6 $35.1 
202216.5 0.9 17.4 
202313.0 0.9 13.9 
20249.4 0.9 10.3 
20256.8 0.5 7.3 
Thereafter10.0 0.6 10.6 
Total$90.2 $4.4 $94.6 
Less: Interest11.9 0.8 12.7 
Present value of lease liabilities$78.3 $3.6 $81.9 
Less obligations due within one year35.0 0.6 35.6 
Long-term lease obligation$43.3 $3.0 $46.3 
(1)As of March 31, 2021, the Company’s operating lease payments included no material options to extend lease terms that are reasonably certain of being exercised. The Company has no legally binding minimum lease payments for leases signed but not yet commenced as of March 31, 2021.
(2)As of March 31, 2021, the Company’s finance lease payments included no material options to extend lease terms that are reasonably certain of being exercised. The Company has no legally binding minimum lease payments for leases that have been signed but not yet commenced as of March 31, 2021.
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Weighted-Average Lease Term and Discount Rate
The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating and finance leases were as follows:
March 31, 2021December 31, 2020
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases3.83.8
Finance leases5.25.4
Weighted-average discount rate:
Operating leases7.2 %7.3 %
Finance leases8.3 %8.3 %

7. Commitments and Contingencies
From time to time, the Company is a party to certain claims and litigation incidental to its business, including claims made by various taxation and regulatory authorities, such as the Internal Revenue Service, the EPA and the U.S. Occupational Safety and Health Administration (“OSHA”), as well as various state environmental regulatory bodies and state and local departments of revenue, as the result of audits or reviews of the Company’s business. In addition, the Company has property, business interruption, general liability and various other insurance policies that may result in certain losses or expenditures being reimbursed to the Company.
Environmental
The Company conducts crude oil and specialty hydrocarbon refining, blending and terminal operations and such activities are subject to stringent federal, regional, state and local laws and regulations governing worker health and safety, the discharge of materials into the environment and environmental protection. These laws and regulations impose obligations that are applicable to the Company’s operations, such as requiring the acquisition of permits to conduct regulated activities, restricting the manner in which the Company may release materials into the environment, requiring remedial activities or capital expenditures to mitigate pollution from former or current operations, requiring the application of specific health and safety criteria addressing worker protection and imposing substantial liabilities for pollution resulting from its operations. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations or the incurrence of capital expenditures; the occurrence of delays in the permitting, development or expansion of projects and the issuance of injunctive relief limiting or prohibiting Company activities. Moreover, certain of these laws impose joint and several, strict liability for costs required to remediate and restore sites where petroleum hydrocarbons, wastes or other materials have been released or disposed. In addition, new laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement or other developments, some of which legal requirements are discussed below, could significantly increase the Company’s operational or compliance expenditures.
Remediation of subsurface contamination is in process at certain of the Company’s refinery sites and is being overseen by the appropriate state agencies. Based on current investigative and remedial activities, the Company believes that the soil and groundwater contamination at these refineries can be controlled or remediated without having a material adverse effect on the Company’s financial condition. However, such costs are often unpredictable and, therefore, there can be no assurance that the future costs will not become material.
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Renewable Identification Numbers Obligation
The RFS allows small refineries to apply at any time for a Small Refinery Exemption (“SRE”) from the renewable blending requirements. The EPA has not acted on 2019 and 2020 SRE applications and has extended the compliance deadlines for those years which are not yet current. On January 19, 2021, the Company filed a lawsuit against Mr. Andrew Wheeler, Administrator of the EPA, in federal court in the Western District of Louisiana and in the District of Montana seeking an order that the EPA cannot enforce the RINs compliance deadline until the EPA has taken action on the Company’s hardship exemption applications. The lawsuits are currently pending.
The Company continues to anticipate that RFS compliance may continue to result in a significant expense for the Specialty Products and Solutions and Montana/Renewables segments. If legal or regulatory changes occur that have the effect of increasing the RINs Obligation, increasing the market price of RINs, or eliminating or narrowing the availability of SRE, the Company could be required to purchase additional RINs in the open market, which may materially increase the costs related to RFS compliance and could have a material adverse effect on the results of operations and liquidity.
As of March 31, 2021 and December 31, 2020, the Company had a RINs Obligation recorded on the condensed consolidated balance sheets of $215.1 million and $129.4 million, respectively. Please read Note 3 - “Summary of Significant Accounting Policies” for additional information.
Occupational Health and Safety
The Company is subject to various laws and regulations relating to occupational health and safety, including the federal Occupational Safety and Health Act, as amended, and comparable state laws. These laws and regulations strictly govern the protection of the health and safety of employees. In addition, OSHA’s hazard communication standard, the EPA’s community right-to-know regulations under Title III of the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, and similar state statutes require the Company to maintain information about hazardous materials used or produced in the Company’s operations and provide this information to employees, contractors, state and local government authorities and customers. The Company maintains safety and training programs as part of its ongoing efforts to promote compliance with applicable laws and regulations. The Company conducts periodic audits of process safety management systems at each of its locations subject to this standard. The Company’s compliance with applicable health and safety laws and regulations has required, and continues to require, substantial expenditures. Changes in occupational safety and health laws and regulations or a finding of non-compliance with current laws and regulations could result in additional capital expenditures or operating expenses, as well as civil penalties and, in the event of a serious injury or fatality, criminal charges.
Other Matters, Claims and Legal Proceedings
The Company is subject to matters, claims and litigation incidental to its business. The Company has recorded accruals with respect to certain of its matters, claims and litigation where appropriate, that are reflected in the unaudited condensed consolidated financial statements but are not individually considered material. For other matters, claims and litigation, the Company has not recorded accruals because it has not yet determined that a loss is probable or because the amount of loss cannot be reasonably estimated. While the ultimate outcome of matters, claims and litigation currently pending cannot be determined, the Company currently does not expect these outcomes, individually or in the aggregate (including matters for which the Company has recorded accruals), to have a material adverse effect on its financial position, results of operations or cash flows. The outcome of any matter, claim or litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its financial position, results of operations or cash flows.
Standby Letters of Credit
The Company has agreements with various financial institutions for standby letters of credit, which have been issued primarily to vendors. As of March 31, 2021 and December 31, 2020, the Company had outstanding standby letters of credit of $17.4 million and $23.7 million, respectively, under its senior secured revolving credit facility (the “revolving credit facility”). Please read Note 9 - “Long-Term Debt” for additional information regarding the Company’s revolving credit facility. At March 31, 2021 and December 31, 2020, the maximum amount of letters of credit the Company could issue under its revolving credit facility was subject to borrowing base limitations, with a maximum letter of credit sublimit equal to $300.0 million, which may be increased with the consent of the Agent (as defined in the Credit Agreement) to 90% of revolver commitments then in effect ($600.0 million at March 31, 2021 and December 31, 2020).
Throughput Contract
Prior to 2020, the Company entered into a long-term agreement to transport crude oil at a minimum of 5,000 bpd through a pipeline, which commenced service in the second quarter of 2020. The agreement also contains a capital recovery charge that increases 2% per annum. This agreement is for seven years.
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As of March 31, 2021, the estimated minimum unconditional purchase commitments, including the capital recovery charge, under the agreement were as follows (in millions):
YearCommitment
2021$2.6 
20223.9 
20233.9 
20244.0 
20254.0 
Thereafter6.0 
Total (1)
$24.4 
(1)As of March 31, 2021, the estimated minimum payments for the unconditional purchase commitments have been accrued and are included in other current liabilities and other long-term liabilities in the condensed consolidated balance sheets. This liability was accrued due to the fact that the contract was entered into to supply crude to a divested facility.
8. Inventory Financing Agreements
The Company entered into several agreements with Macquarie to support the operations of the Great Falls refinery and the Shreveport refinery (as amended, the “Supply and Offtake Agreements”), which each have an expiration date of June 30, 2023.
The Supply and Offtake Agreements allow the Company to purchase crude oil from Macquarie or one of its affiliates. Per the Supply and Offtake Agreements, Macquarie will provide up to 30,000 barrels per day of crude oil to the Great Falls refinery and 60,000 barrels per day of crude oil to the Shreveport refinery.
While title to certain inventories will reside with Macquarie, the Supply and Offtake Agreements are accounted for by the Company similar to a product financing arrangement; therefore, the inventories sold to Macquarie will continue to be included in the Company’s condensed consolidated balance sheets until processed and sold to a third party.
For the three months ended March 31, 2021 and 2020, the Company incurred an expense of $1.4 million and received a $1.8 million benefit, respectively, for financing costs related to the Supply and Offtake Agreements, which are included in interest expense in the Company’s unaudited condensed consolidated statements of operations.
The Company has provided cash collateral of $13.8 million related to the initial purchase of the Great Falls and Shreveport inventory to cover credit risk for future crude oil deliveries and potential liquidation risk if Macquarie exercises its rights and sells the inventory to third parties. The collateral was recorded as a reduction to the obligations.
The Supply and Offtake Agreements also include a deferred payment arrangement (“Deferred Payment Arrangement”) whereby the Company can defer payments on just-in-time crude oil purchases from Macquarie owed under the agreements up to the value of the collateral provided (up to 90% of the collateral inventory). The deferred amounts under the Deferred Payment Arrangement bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus 3.25% per annum for both Shreveport and Great Falls. Amounts outstanding under the Deferred Payment Arrangement are included in obligations under inventory financing agreements in the Company’s condensed consolidated balance sheets. Changes in the amount outstanding under the Deferred Payment Arrangement are included within cash flows from financing activities in the Company’s unaudited condensed consolidated statements of cash flows. As of March 31, 2021 and December 31, 2020, the Company had $21.4 million and $15.0 million of deferred payments outstanding, respectively. In addition to the Deferred Payment Arrangement, Macquarie has advanced the Company an additional $5.0 million which remained outstanding as of March 31, 2021.
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9. Long-Term Debt
Long-term debt consisted of the following (in millions):
March 31, 2021December 31, 2020
Borrowings under third amended and restated senior secured revolving credit agreement with third-party lenders, interest payments quarterly, borrowings due February 2023, weighted average interest rates of 2.3% and 2.4% for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.
$115.5 $108.0 
Borrowings under the 2022 Notes, interest at a fixed rate of 7.625%, interest payments semiannually, borrowings due January 2022, effective interest rate of 8.3% and 8.1% for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. (1)
150.5 150.6 
Borrowings under the 2023 Notes, interest at a fixed rate of 7.75%, interest payments semiannually, borrowings due April 2023, effective interest rate of 8.2% and 8.1% for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.
325.0 325.0 
Borrowings under the 2024 Secured Notes, interest at a fixed rate of 9.25%, interest payments semiannually, borrowings due July 2024, effective interest rate of 9.4% for the three months ended March 31, 2021 and the year ended December 31, 2020.
200.0 200.0 
Borrowings under the 2025 Notes, interest at a fixed rate of 11.0%, interest payments semiannually, borrowings due April 2025, effective interest rate of 11.5% and 11.3% for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.
550.0 550.0 
Shreveport terminal asset financing arrangement69.5  
Other1.9 2.3 
Finance lease obligations, at various interest rates, interest and principal payments monthly through January 20273.6 3.7 
Less unamortized debt issuance costs (2)
(13.9)(14.2)
Less unamortized discounts(5.6)(3.1)
Total debt$1,396.5 $1,322.3 
Less current portion of long-term debt157.2 2.9 
Total long-term debt$1,239.3 $1,319.4 
(1)The balance includes a fair value interest rate hedge adjustment, which increased the debt balance by $0.5 million and $0.6 million as of March 31, 2021 and December 31, 2020, respectively.
(2)Deferred debt issuance costs are being amortized by the effective interest rate method over the lives of the related debt instruments. These amounts are net of accumulated amortization of $21.6 million and $20.5 million at March 31, 2021 and December 31, 2020, respectively.
Senior Notes
The indentures governing the 7.625% Senior Notes due 2022 (“2022 Notes”), the 7.75% Senior Notes due 2023 (“2023 Notes”), the 9.25% Senior Secured First Lien Notes due 2024 (“2024 Secured Notes”) and the 11.00% Senior Notes due 2025 (“2025 Notes”) and, together with the 2022 Notes, 2023 Notes and 2024 Secured Notes, the “Senior Notes” contain covenants that, among other things, restrict the Company’s ability and the ability of certain of the Company’s subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Company’s common units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (vii) consolidate, merge or transfer all or substantially all of the Company’s assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. At any time when the Senior Notes are rated investment grade by either Moody’s Investors Service, Inc. (“Moody’s”) or S&P Global Ratings (“S&P”) and no Default or Event of Default, each as defined in the indentures governing the Senior Notes, has occurred and is continuing, many of these covenants will be suspended. As of March 31, 2021, the Company’s Fixed Charge Coverage Ratio (as defined in the indentures governing the Senior Notes) was 0.9x. As of March 31, 2021, the Company was in compliance with all covenants under the indentures governing the Senior Notes.
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Third Amended and Restated Senior Secured Revolving Credit Facility
On February 23, 2018, the Company entered into the Third Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) governing its senior secured revolving credit facility maturing in February 2023, which provides maximum availability of credit under the revolving credit facility of $600.0 million, subject to borrowing base limitations, and includes a $500.0 million incremental uncommitted expansion feature. Lenders under the revolving credit facility have a first priority lien on, among other things, the Company’s accounts receivable and inventory and substantially all of its cash (collectively, the “Credit Agreement Collateral”). In September 2019, the borrowing base was expanded by $99.6 million by adding the fixed assets of the Company’s Great Falls, MT refinery as collateral under the Credit Agreement. The $99.6 million expansion amortizes to zero on a straight-line basis over ten quarters starting in the first quarter of 2020.
The borrowing capacity at March 31, 2021, under the revolving credit facility was approximately $307.9 million. As of March 31, 2021, the Company had $115.5 million of outstanding borrowings under the revolving credit facility and outstanding standby letters of credit of $17.4 million, leaving approximately $175.0 million of unused capacity.
The revolving credit facility contains various covenants that limit, among other things, the Company’s ability to: incur indebtedness; grant liens; dispose of certain assets; make certain acquisitions and investments; redeem or prepay other debt or make other restricted payments such as distributions to unitholders; enter into transactions with affiliates; and enter into a merger, consolidation or sale of assets. Further, the revolving credit facility contains one springing financial covenant which provides that only if the Company’s availability to borrow loans under the revolving credit facility falls below the greater of (i) 10% of the Borrowing Base (as defined in the Credit Agreement) then in effect, or 15% while the Great Falls, MT refinery is included in the Borrowing Base, and (ii) $35.0 million (which amount is subject to increase in proportion to revolving commitment increases), then the Company will be required to maintain as of the end of each fiscal quarter a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of at least 1.0 to 1.0. As of March 31, 2021, the Company was in compliance with all covenants under the revolving credit facility.
Maturities of Long-Term Debt
As of March 31, 2021, principal payments on debt obligations and future minimum rentals on finance lease obligations are as follows (in millions):
YearMaturity
2021$7.0 
2022157.4 
2023448.5 
2024208.7 
2025559.2 
Thereafter34.7 
Total$1,415.5 

10. Derivatives
The Company is exposed to price risks due to fluctuations in the price of crude oil, refined products, natural gas and precious metals. The Company uses various strategies to reduce its exposure to commodity price risk. The strategies to reduce the Company’s risk utilize both physical forward contracts and financially settled derivative instruments, such as swaps, collars, options and futures, to attempt to reduce the Company’s exposure with respect to:
crude oil purchases and sales;
fuel product sales and purchases;
natural gas purchases;
precious metals purchases; and
fluctuations in the value of crude oil between geographic regions and between the different types of crude oil such as New York Mercantile Exchange West Texas Intermediate (“NYMEX WTI”), Light Louisiana Sweet, Western Canadian Select (“WCS”), WTI Midland, Mixed Sweet Blend, Magellan East Houston and ICE Brent.
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The Company manages its exposure to commodity markets, credit, volumetric and liquidity risks to manage its costs and volatility of cash flows as conditions warrant or opportunities become available. These risks may be managed in a variety of ways that may include the use of derivative instruments. Derivative instruments may be used for the purpose of mitigating risks associated with an asset, liability and anticipated future transactions and the changes in fair value of the Company’s derivative instruments will affect its earnings and cash flows; however, such changes should be offset by price or rate changes related to the underlying commodity or financial transaction that is part of the risk management strategy. The Company does not speculate with derivative instruments or other contractual arrangements that are not associated with its business objectives. 
Speculation is defined as increasing the Company’s natural position above the maximum position of its physical assets or trading in commodities, currencies or other risk bearing assets that are not associated with the Company’s business activities and objectives. The Company’s positions are monitored routinely by a risk management committee to ensure compliance with its stated risk management policy and documented risk management strategies. All strategies are reviewed on an ongoing basis by the Company’s risk management committee, which will add, remove or revise strategies in anticipation of changes in market conditions and/or its risk profiles. Such changes in strategies are to position the Company in relation to its risk exposures in an attempt to capture market opportunities as they arise. 
The Company is obligated to repurchase crude oil and refined products from Macquarie at the termination of the Supply and Offtake Agreements in certain scenarios. The Company has determined that the redemption feature on the initially recognized liability related to the Supply and Offtake Agreements is an embedded derivative indexed to commodity prices. As such, the Company has accounted for these embedded derivatives at fair value with changes in the fair value, if any, recorded in Gain (loss) on derivative instruments in the Company’s unaudited condensed consolidated statements of operations.
The Company recognizes all derivative instruments at their fair values (please read Note 11 - “Fair Value Measurements”) as either current assets or current liabilities in the condensed consolidated balance sheets. Fair value includes any premiums paid or received and unrealized gains and losses. Fair value does not include any amounts receivable from or payable to counterparties, or collateral provided to counterparties. Derivative asset and liability amounts with the same counterparty are netted against each other for financial reporting purposes in accordance with the provisions of our master netting arrangements.
The following tables summarize the Company’s gross fair values of its derivative instruments, presenting the impact of offsetting derivative assets in the Company’s condensed consolidated balance sheets (in millions):
 March 31, 2021December 31, 2020
 Balance Sheet LocationGross Amounts of Recognized AssetsGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Assets Presented
in the Condensed Consolidated Balance Sheets
Gross Amounts of Recognized AssetsGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Assets Presented
in the Condensed Consolidated Balance Sheets
Derivative instruments not designated as hedges:
Montana/Renewables segment:
WCS crude oil basis swaps
Other current assets$ $ $ $0.4 $(0.4)$ 
Total derivative instruments$ $ $ $0.4 $(0.4)$ 
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The following tables summarize the Company’s gross fair values of its derivative instruments, presenting the impact of offsetting derivative liabilities in the Company’s condensed consolidated balance sheets (in millions):
March 31, 2021December 31, 2020
Balance Sheet LocationGross Amounts of Recognized LiabilitiesGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Liabilities Presented
in the Condensed Consolidated Balance Sheets
Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Liabilities Presented
in the Condensed Consolidated Balance Sheets
Derivative instruments not designated as hedges:
Specialty Products and Solutions segment:
Inventory financing obligation
Obligations under inventory financing agreements$(6.3)$ $(6.3)$(1.1)$ $(1.1)
Montana/Renewables segment:
Inventory financing obligation
Obligations under inventory financing agreements$(3.5)$ $(3.5)$(1.1)$ $(1.1)
WCS crude oil basis swaps
Other current liabilities   (1.7)0.4 (1.3)
Total derivative instruments$(9.8)$ $(9.8)$(3.9)$0.4 $(3.5)
The Company is exposed to credit risk in the event of nonperformance by its counterparties on these derivative transactions. The Company does not expect nonperformance on any derivative instruments, however, no assurances can be provided. The Company’s credit exposure related to these derivative instruments is represented by the fair value of contracts reported as derivative assets. As of March 31, 2021 and December 31, 2020, the Company had no counterparty relationships in which the derivatives held were in net assets. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings. The Company primarily executes its derivative instruments with large financial institutions that have ratings of at least A3 and BBB+ by Moody’s and S&P, respectively. In the event of default, the Company would potentially be subject to losses on derivative instruments with mark-to-market gains. The Company requires collateral from its counterparties when the fair value of the derivatives exceeds agreed-upon thresholds in its master derivative contracts with these counterparties. No such collateral was held by the Company as of March 31, 2021 or December 31, 2020. Collateral received from counterparties is reported in other current liabilities, and collateral held by counterparties is reported in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is not netted against derivative assets or liabilities. Any outstanding collateral is released to the Company upon settlement of the related derivative instrument liability. As of March 31, 2021 and December 31, 2020, the Company had provided its counterparties with no collateral.
Certain of the Company’s outstanding derivative instruments are subject to credit support agreements with the applicable counterparties which contain provisions setting certain credit thresholds above which the Company may be required to post agreed-upon collateral, such as cash or letters of credit, with the counterparty to the extent that the Company’s mark-to-market net liability, if any, on all outstanding derivatives exceeds the credit threshold amount per such credit support agreement. The majority of the credit support agreements covering the Company’s outstanding derivative instruments also contain a general provision stating that if the Company experiences a material adverse change in its business, in the reasonable discretion of the counterparty, the Company’s credit threshold could be lowered by such counterparty. The Company does not expect that it will experience a material adverse change in its business.
The cash flow impact of the Company’s derivative activities is classified primarily as a change in assets and liabilities in the operating activities section in the unaudited condensed consolidated statements of cash flows.
Derivative Instruments Not Designated as Hedges
For derivative instruments not designated as hedges, the change in fair value of the asset or liability for the period is recorded to Gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations. Upon the settlement of a derivative not designated as a hedge, the gain or loss at settlement is recorded to Gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations. The Company has entered into natural gas swaps, crack spread swaps and crude oil basis swaps that do not qualify as cash flow hedges for accounting purposes. However, these instruments provide economic hedges of the purchases and sales of the Company’s natural gas, crude oil, and refined products.
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The Company recorded the following gains (losses) in its unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020, related to its derivative instruments not designated as hedges (in millions):
Type of DerivativeAmount of Realized Gain (Loss) Recognized in Gain on Derivative InstrumentsAmount of Unrealized Gain (Loss) Recognized in Gain on Derivative Instruments
Three Months Ended March 31,Three Months Ended March 31,
2021202020212020
Specialty Products and Solutions segment:
Inventory financing obligation$ $ $(5.2)$8.5 
Natural gas swaps (0.1) (0.3)
Crack spread swaps 7.0  27.1 
Montana/Renewables segment:
Inventory financing obligation  (2.4)2.5 
WCS crude oil basis swaps1.1  1.3 (6.2)
Total$1.1 $6.9 $(6.3)$31.6 
Derivative Positions
At March 31, 2021, the Company had no outstanding derivative contracts.
11. Fair Value Measurements
In accordance with ASC 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. These tiers include the following:
Level 1 — inputs include observable unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 — inputs include other than quoted prices in active markets that are either directly or indirectly observable
Level 3 — inputs include unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.
Recurring Fair Value Measurements
Derivative Assets and Liabilities
Derivative instruments are reported in the accompanying unaudited condensed consolidated financial statements at fair value. The Company’s derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. Substantially all of the Company’s derivative instruments are with counterparties that have long-term credit ratings of at least A3 and BBB+ by Moody’s and S&P, respectively.
Commodity derivative instruments are measured at fair value using a market approach. To estimate the fair values of the Company’s commodity derivative instruments, the Company uses the forward rate, the strike price, contractual notional amounts, the risk-free rate of return and contract maturity. Various analytical tests are performed to validate the counterparty data. The fair values of the Company’s derivative instruments are adjusted for nonperformance risk and creditworthiness of the counterparty through the Company’s credit valuation adjustment (“CVA”). The CVA is calculated at the counterparty level utilizing the fair value exposure at each payment date and applying a weighted probability of the appropriate survival and marginal default percentages. The Company uses the counterparty’s marginal default rate and the Company’s survival rate when the Company is in a net asset position at the payment date and uses the Company’s marginal default rate and the counterparty’s survival rate when the Company is in a net liability position at the payment date. As a result of applying the applicable CVA at March 31, 2021 and December 31, 2020, the Company’s net assets and net liabilities changed, in each case, by an immaterial amount.
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Observable inputs utilized to estimate the fair values of the Company’s derivative instruments were based primarily on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Based on the use of various unobservable inputs, principally non-performance risk, creditworthiness of the counterparties and unobservable inputs in the forward rate, the Company has categorized these derivative instruments as Level 3. Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. The Company believes it has obtained the most accurate information available for the types of derivative instruments it holds. Please read Note 10 - “Derivatives” for further information on derivative instruments.
Pension Assets
Pension assets are reported at fair value in the accompanying unaudited condensed consolidated financial statements. At March 31, 2021 and December 31, 2020, the Company’s investments associated with its pension plan consisted of (i) cash and cash equivalents, (ii) fixed income bond funds, (iii) mutual equity funds, and (iv) mutual balanced funds. The fixed income bond funds, mutual equity funds, and mutual balanced funds are measured at fair value using a market approach based on quoted prices from national securities exchanges and are categorized in Level 1 of the fair value hierarchy.
Liability Awards
Unit-based compensation liability awards are awards that are currently expected to be settled in cash on their vesting dates, rather than in equity units (“Liability Awards”). The Liability Awards are categorized as Level 1 because the fair value of the Liability Awards is based on the Company’s quoted closing unit price as of each balance sheet date.
Renewable Identification Numbers Obligation
The Company’s RINs Obligation is categorized as Level 2 and is measured at fair value using the market approach based on quoted prices from an independent pricing service. Please read Note 3 - “Summary of Significant Accounting Policies” for further information on the Company’s RINs Obligation.
Precious Metals Obligations
The fair value of precious metals obligations is based upon unadjusted exchange-quoted prices and is, therefore, classified within Level 1 of the fair value hierarchy.
Hierarchy of Recurring Fair Value Measurements
The Company’s recurring assets and liabilities measured at fair value were as follows (in millions):
 March 31, 2021December 31, 2020
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Pension plan investments$34.0 $ $ $34.0 $34.4 $ $ $34.4 
Total recurring assets at fair value$34.0 $ $ $34.0 $34.4 $ $ $34.4 
Liabilities:
Derivative liabilities:
Inventory financing obligation$ $ $(9.8)$(9.8)$ $ $(2.2)$(2.2)
WCS crude oil basis swaps      (1.3)(1.3)
Total derivative liabilities$ $ $(9.8)$(9.8)$ $ $(3.5)$(3.5)
RINs obligation (215.1) (215.1) (129.4) (129.4)
Precious metals obligations(8.8)  (8.8)(7.9)  (7.9)
Liability awards(26.1)  (26.1)(14.2)  (14.2)
Total recurring liabilities at fair value$(34.9)$(215.1)$(9.8)$(259.8)$(22.1)$(129.4)$(3.5)$(155.0)
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The table below sets forth a summary of net changes in fair value of the Company’s Level 3 financial assets and liabilities (in millions):
Three Months Ended March 31,
 20212020
Fair value at January 1,$(3.5)$(6.3)
Realized gain (loss) on derivative instruments1.1 (6.9)
Unrealized gain (loss) on derivative instruments(6.3)31.6 
Settlements(1.1)6.9 
Fair valu